Fire-land restoration costs

[equinecpa]

I have a farmer client whose land was burnt by wildfire last year. They paid out approximately $10,000 in dozer/clean-up work to stop erosion and clean up the land after the fire. This sounds like a casualty loss to me-but when I try to complete the 4684, I'm not sure if this fits. Can a casualty loss be claimed on land? It's definitely not worth as much as before the fire. My client is only seeking to claim the out-of-pocket clean-uo expenses, should this just be claimed on the Schedule F perhaps as maintenance?

TIA

Carolyn

[TXEA]

I think this is a casualty loss. There is a section of Pub 225 that addresses this issue (although not sure if it covers land).

Pay particular attention to the section regarding restoration costs.

[JohnH]

I can't vouch for the reliability of this article, but it sure looks as though it's on point:

http://forestandrange.org/modules/afterwildfire/pdfs/tax.pdf

You might have a combination of both casualty loss AND currently deductible business expenses for the cleanup/restoration work. (See middle of the second page).

[equinecpa]

Thanks-that link is helpful.

I can't vouch for the reliability of this article, but it sure looks as though it's on point:

http://forestandrange.org/modules/afterwildfire/pdfs/tax.pdf

You might have a combination of both casualty loss AND currently deductible business expenses for the cleanup/restoration work. (See middle of the second page).

[Nashville]

Timber Value

Check the proceeds from the insurance and see if a portion of it is allocated to the value of timber lost. There had to be timber unless it was all pasture or desert.

If so, I would report the sale of timber for that portion of the insurance proceeds. That will reduce the insurance proceeds which calculate the casualty loss, in fact it might just convert a gain into a loss.

Depending on the numbers, the above strategy might hurt worse than it helps. Many people do not track basis in their timber, and if the 10% haircut messes up the loss, it might not work.